A New Restaurant

It’s been a dream of mine to own a restaurant. I’ve spent a lot of time dreaming and planning. One question that I keep coming back to is, should I start from scratch or buy an existing restaurant? There are pros and cons to each, but overall, which would serve me best?

Starting from scratch

Starting a restaurant form scratch is a labor of love. I would have the advantage of all the decisions being mine. I could control the layout, location, every detail of the operation. It would be my baby from day one. As a potential business owner, that control does have a strong appeal.

There is a downside. Starting a restaurant from the ground up requires a lot of money; money that could be used for operating and living expenses. Overall it can cost 3-4 times the amount of money it would take to purchase an existing restaurant. The increased amount required will increase the amount of risk involved, and make it that much more difficult to get financing.

Starting a restaurant from scratch also requires a considerable amount of time. You have to research your location, research and hire architects and contractors to build or remodel your chosen location, and research and purchase your equipment. And that’s just the start of the list. It also includes small wares, tables and chairs, light fixtures, carpet…well, you get the picture.

You will also need to research and establish relationships with food suppliers, and do your research for the exact food items you want to use

Buying an existing restaurant

On the other hand, buying an existing restaurant can be much more inexpensive. While buying a successful restaurant might cost a pretty penny many times it is still a savings in time and money from doing it all yourself. If you’re looking for bargains, many distressed businesses can be relatively inexpensive.

A word of caution here; you need to make sure you do your due diligence. Find out exactly why the owner is selling the business. Are they retiring or just tired of the business, or is there an underlying reason that you need to be aware of. It’s possible that the lease is up for renewal and the rates are going to be significantly increased. There may be changes planned for the area that will impact the demographics, traffic flow, or any number of other things. This is especially true when you are looking at a distressed business. Find out exactly why the restaurant is failing. Many restaurants fail because the owners don’t understand the business. It may be the wrong concept, or menu, or price point for the area. If it is failing because of these reasons, you can easily overcome that and turn the opportunity into a big success. Other problems like location are not so easily overcome, so do your research. Don’t be so enamored by the low price that you jump at a deal that won’t be to your advantage.

A turn-key operation

Besides the savings in money, buying an existing operation can also save you a lot of time. Many of these restaurants are basically turn-key operations. Once you buy the restaurant, it doesn’t take much time to re-open and begin doing business. In most cases you are purchasing all of the kitchen equipment, dining room tables, chairs, small wares, and everything in between.

If you are buying a successful business and not changing the name, you already have all of the signs, menu, and stationary. If you are making name changes, it will take a little more time and expense to make changes and get your signs and menus made, but you should have saved enough on the purchase to be able to afford that.

Make sure you check with the city and chamber of commerce to find out what you need to do to get any existing licenses transferred.

Disadvantages of buying an existing restaurant

While there are great deals to be had by buying an existing restaurant, there are some disadvantages you need to be aware of.

When you are looking to buy a restaurant, you are at the mercy of the market. You don’t have as much control of location, or size or configuration of the building. If there are no restaurants for sale in the area you want to be in, you either have to wait for one, or locate in a different area. That’s an issue I’m dealing with now. I live in a small town, and I would love to open my restaurant here. Unfortunately, there aren’t any restaurants for sale here. I either have to wait in the hopes that one goes on the market soon, change my location and look for opportunities outside my town, or abandon my plan to buy, and make plans to start for scratch.

Other issues have both good sides and bad sides. You already have a staff in place, but that staff was trained by the previous owners, and any bad habits they developed will be your problem to deal with. At the very least, you will need to make sure you clearly inform your staff of any changes that are being made, and what your expectations are. You will also inherit the previous owners pay rates. If those rates are higher than what you are willing to pay, you will lose staff when you make adjustments to their pay.

For good or bad your restaurant has a reputation. If it has a good reputation, everything you do will be compared to the previous owner. Any changes to the menu or the recipes will be scrutinized. If the restaurant has a bad reputation, your changes may be viewed in a more positive light. Your customer base is probably pretty small, so you will have to work to get the word out that things have changed. It’s going to take some time to build that customer base back up.

While there are deals to be had when buying a restaurant, you have to give up some of the decision making in the process. As in all decisions when starting a new restaurant, do your research.